Contract Retention

Improving contract retention rates should be your highest priority but it needn’t be overly complicated. When you have a clear understanding of what you need to investigate, it should be relatively simple to rectify issues, retain Clients and boost your contract retention rate.

This is the second post in a four post series focusing on Client and contract retention. In last weeks post entitled The 3 Common Causes for Contract Losses,  I focused on the three most fundamental reasons why Clients terminate contract and seek alternative suppliers.

In this week’s post I want to focus on the the process you will need to undertake to recognise a contracts vulnerability to termination as well as deal effectively with retaining that contract. This simple process comprises 6 core steps together with 4 enablers. I will go into more depth regarding these in next weeks post entitled The 4 Enablers of Contract Retention.

As a service provider the first thing that you need to do is to undertake a detailed assessment of the vulnerability of the contracts in your portfolio. Contracts go through a number of different phases in their life-cycle, in some of these phases they may be more or less susceptible to termination, whether this is due to performance issues or simply because contract renewal is imminent. To do this you need to create a create risk register.

1. Creating a Contract Retention Risk Register

If you have a portfolio of contracts to manage it is likely that no two contracts are the same or are in the same stage of their life-cycle. Each contract is unique in its own way and so you need a universal process for determining which contracts are important to your company and should be retained as well as those that are vulnerable. this will provide you with a view of those contracts that are worth saving and those which should be shut down.

I have found the STaRS model used by Michael Watkins in his book The First 90 Days useful for categorising contracts that are in different stages of their life-cycle. I will cover this model in more detail in a future blog post, but for the purposes of today those stages are as follows;
a. Start up
b. Turnaround
c. accelerated growth
d. Realignment
e. Sustaining Success

Using this model you can determine the relevant stage in the life-cycle of each contract, and the type of action that is required to bring this back to a platform from which you can grow the contract. Once you have been able to assess each contract using your own individual weighting factors it is advisable that you undertake a review whereby the contract is objectively assessed against two key criteria.

a. How important is this contract to your business?

In the first instance it is advisable that you make a decision on how important this contract is to your organisation. There are many reasons why you may want to exit from a contract or a Client and this decision needs to be taken carefully and objectively. It is critical that you undertake this analysis first. If you do not, you run the risk of persisting with a Client or a contract that is potentially damaging your organisation either financially or reputationally. In making this assessment you may want to evaluate the contract based on criteria such as;

  • How large is the contract?
  • How does the Return on Investment (ROI) on this contract compare to your internal hurdle rate?
  • What percentage of revenue/profit would be lost if the contract was not renewed?
  • Is this a high-profile contract? Would there be significant brand damage if you lost this Client?
  • Does this Client or the Client’s business fit with our strategy?
  • How long until the contract expires?
  • What is the potential for growth for this contract are there up sell or cross-sell opportunities?

b. How vulnerable is this contract?

On the assumption that you have taken the decision to try to retain this Client the second stage of this process is to assess how vulnerable the contract is.

  • What is the level and quality of the relationship with the Client in general?
  • Do you have a strong relationship with the key Client personnel ?
  • Is this relationship dependent on more than one person?
  • What are your customer satisfaction scores telling you?
  • How are you performing in terms of your SLA’s KPI’s etc?
  • What are the issues you have faced on the contract?
  • How much improvement have you delivered on the contract?
  • How much added value have you been able to deliver on the contract?
  • How have you delivered on customer complaints?
  • What is the availability of contract information for use in any rebid?
  • What is the level of competition you’re likely to face if the Client goes to tender?
  • Does the customer trust you?
  • What are the potential changes the customer may introduce?
  • What is your knowledge of the likely rebid process and likely customer requirements?
  • What are the unique key customer needs?
  • What are our unique differentiators?
  • What is the capability and capacity of your resources to conduct the turnaround?

Once you’ve selected your own particular criteria you need to rate each contract against those criteria ensuring that you are as objective as possible. Provide scores and then combine these into a single rating which represents your contract vulnerability index

2. Assessing Client Relationships

Unfortunately delivering a great service is no longer enough to be certain of being able to retain Clients. A great service experience is the norm and is expected as your ‘licence to trade’. As I mentioned in my last post The 3 Common Causes for Contract Losses customer expectations are on the rise and suppliers are constantly trying to improve their services to keep up. Suppliers have to work harder to ensure Client loyalty and that way hopefully there are no nasty surprises.

The ultimate goal for any long-term relationship is for the supplier to achieve what David H Maister describes as the ’Trusted Advisor’ status with the Client. Becoming the ‘Trusted Advisor’ doesn’t just retain you this contract, word of mouth will bring you higher rewards and recommendations as well as the likelihood of expanding your service delivery and up-selling within the existing contract.

Over time, retaining existing Clients means that contract expenses generally decrease and the opportunities for ‘stickiness’ with your Client increases. Generally speaking Clients are also less price sensitive when retaining existing suppliers and the opportunities for cross or up-selling increase as the business grows.

Understanding that your Clients needs can change is an essential part of ensuring that Clients continue to sign on the dotted line and that contract retention is maintained. You need to take the time to really find out what is driving the customer, what their needs are and where issues may potentially arise in the future. This will mark you out as a proactive supplier that your Client simply does not want to lose. This can be achieved by conducting regular and detailed customer satisfaction surveys.

There are numerous methods for conducting Client satisfaction levels and I will not go into these in this post. Whatever method is chosen you will need to strike the right balance between frequency, convenience, independence, and detail. In essence a survey regime should be constructed which balances frequent shallow dive surveys that are quick and convenient for the Client. These should be frequent enough to take the pulse of the contract without the Client suffering from survey fatigue.  These surveys should be balanced with a more detailed one on one, deep dive once or at most, twice a year.

In my experience it is preferable to have an independent organisation conduct these surveys, so as to add credibility to the process. I have found that customers relish the opportunity to tell us what’s right and what’s wrong and I have used this as a tool to create change, develop new strategies and kick-start innovation that might otherwise have been missed.

Providing a Client with the ability for them to let you know how you’re doing has wider implications than just preventing losses, it shows Clients that you are genuinely interested in them and their business and that you are open to seeking new ways to satisfy both their stated and unstated needs.

Doing this independently gives a key signal to our Clients that marks you as genuine in your quest for excellence and one that is committed to providing a service second to none. Research shows that suppliers that conduct regular Client surveys achieve on average 56% stronger relationships. So as you can see this is more than just an opportunity to find out how satisfied how customers are with your service. This is your opportunity to cement your relationship as the ’Trusted Advisor’.

Uncovering this information allows you to highlight upcoming dangers and potential landmines. This will give you pointers in how to avert potential losses and convert these into future wins.

3. Developing a Contract Retention Plan

Once you have identified your list of contracts that are potentially vulnerable you need to develop a plan that shows to all parties involved how you intend to retain those particular Clients. Initially you will need to get a 360° view of all aspects of the account and so all members of the team should be convened. this includes all levels from the operations manager and her team on-site to any dedicated account relationship managers and back of house staff.

Look at each of the factors objectively going into some detail in understanding each one. Ensure that you gain the input from all members even those not directly Client facing. The result of your analysis needs to be collated into a table showing which areas are most vulnerable and what is your source for this view you can summarise your findings in a simple matrix such as the one below.

matrix

At this point do not be too quick to act, you only have your own internal and probably bias view as to the current situation.

4. Meeting with the Client

Steps 1 to 3 have all been in preparation for a meeting with the Client. You should now have a reasonably good idea of how vulnerable the contract is and what the relationship is with the Client. You will also have an idea of what your team needs to address and exactly how important this contract is to your company.

In your meeting with the Client it is advisable to initially offer them a meeting with someone from your organisation who is independent from the contract. This should be a senior person in the organisation who is currently not involved in the account at all. This will allow your Client a sense of confidentiality that promotes an honest exchange of ideas and feedback.

The beginning of the meeting should be focused around the Client’s perceptions of the service that you have already delivered, both positive and negative. Take this opportunity to ensure that you understand what is truly important to them. Do not discuss any contractual issues nor should you defend any issues that may not be based in reality. Perception is reality when it comes to services.

Maintain the conversation at a strategic level asking what if anything has changed since the beginning of the contract. Ask them how best they think you should adapt your offering with the upcoming renewal. This is a good opportunity to present new ideas or solutions. Even if these ideas are not accepted it shows willingness to change and that you have the customer’s best interests at heart.

Once you’ve agreed next steps with the Client, arrange another meeting with your contract team to deliver the results of the investigation.

5. Taking Action

Armed with your own teams view of the issues and those that you have gathered from your meeting with the Client a fuller picture of what is happening on the contract can be drawn. Bringing together the same team and referring to the matrix, you should be able to flesh out what you need to do to retain the contract.

At this point it is worth stating that the team leader should attempt to take a backseat in this process. Ideas and initiatives handed down from the leader do not create the type of engagement, buy-in and accountability that is required from the people who will have to deliver on these plans.

Ask the team to look at each factor objectively, together with any that have been added in your interview with the Client. You may need to encourage the team to dig deeper into the detail in understanding each one of the specific areas that they need to work on.

Take note that you may never be able to move all of the red marks into the green. Moving items from the red ‘at risk’ status to the amber ‘neutral’ may be sufficient. Depending on the time and the resources available it may be necessary leave some at amber status providing the key issues gleaned from your interview with the Client has been moved to the green ‘strength’ column.

Go over each piece of feedback from the Client with your team, carefully documenting what needs to be a done to address each issue by when and by whom. Formulate the action plan and ensure that this is driven through to completion.

matrix2

6. Reviewing the Process

Getting to stage six may seem like a long journey but it is almost certainly worth it. Contracts retained are like the proverbial ‘bird in hand’ they are worth more than ‘two in the bush’. It is however worthwhile at this point, to review the process to discover if the process has worked before starting the cycle again.

Once the process is established you’ll need to hold monthly reviews of the risk register and the contract retention plan to ensure that you are focusing on the key change objectives. By now you should have a clear list of actions that you can check against to see how things are progressing and these should be assessed against increased customer satisfaction scores.

When things do go wrong it is important to examine exactly what went awry, rather than just moving on to winning new contracts. Learning from mistakes can be a valuable way of turning around a bad situation. In my experience Client relationships are often stronger after conducting a turnaround than they were before. Clients recognise the suppliers who have taken the time to understand their failings and they reward the effort that has been put into a turnaround that meet their needs, the ability to change to meet expectations does not go unnoticed.

Please remember that this post is Part 2 of a 4 part series

In next weeks post we will examine The 4 Enablers of Contract Retention.

I really value your comments in moving the debate forward and so I would encourage you to leave your comments below or provide your insight on the Question: Have you ever been caught off guard by a Client wishing to terminate a contract? What were the causes and what were you able to do to retain the contract?

Please leave your comments below